As Canada’s real estate market continues to shift in 2025, its ripple effects are being felt across the rental landscape. Home prices, interest rates, and buyer behaviour all play a significant role in shaping the supply, demand, and affordability of rental housing nationwide. The Bank of Canada officially announced an interest rate cut on September 17th, fueling hopes for a housing market rebound this fall after a sluggish spring. Many buyers and sellers have been waiting on the sidelines amid economic uncertainty and strained Canada–U.S. trade relations. While the rate cut could prompt more Canadians to re-enter the market, analysts warn that ongoing trade tensions may continue to limit a full recovery through late 2025.
At the same time, investors and landlords are reevaluating their strategies, as changing mortgage costs and fluctuating home values impact profitability and long-term planning. This evolving relationship between the real estate and rental markets is crucial to understand, especially in high-demand urban centres like Toronto, Vancouver, and Montreal. In this post, we’ll explore how trends in home buying influence rental prices, availability, and tenant demand, and what renters, landlords, and policymakers should be watching for as we close out 2025 and look toward 2026.
How the Real Estate Market Shapes the Rental Market
The real estate market directly influences the rental market through supply, demand, and affordability. When housing construction increases, especially purpose-built rentals, more units become available, easing pressure on advertised rents. However, high real estate prices can limit homeownership, keeping more people in the rental market and driving demand. Economic factors like job growth and migration also affect vacancy rates and rent levels. In short, shifts in real estate trends often shape rental conditions, especially in fast-growing or high-cost cities, meaning landlords and renters should always be conscious of real estate trends when considering their housing situation.
Housing Affordability Keeps Renters in Place
With home prices still out of reach for many, more renters are staying put longer. The gap between the cost of renting and buying remains wide, especially in major cities like Toronto and Vancouver. This limits turnover in rental units, reducing availability for new renters. As fewer people transition to homeownership, pressure builds on the rental market, keeping demand, and often prices, elevated despite increases in new rental supply.
Mortgage Rates Push Rental Costs Higher
High mortgage rates make homeownership less affordable, pushing more people into the rental market. At the same time, landlords facing higher borrowing costs often pass those expenses onto tenants through increased rents. This trend is particularly strong in markets with limited rental stock, where competition for units allows property owners to raise prices. As long as borrowing remains expensive, renters can expect continued upward pressure on monthly housing costs.
Limited Housing Supply Restricts Rental Options
Canada’s housing supply has not kept pace with population growth, limiting rental choices in many cities. Even with increased construction of purpose-built rentals, demand continues to outstrip supply. This shortage is especially severe in urban centres, where zoning restrictions and long approval processes slow development. As a result, many renters face limited options, higher rents, and longer waits for available units, worsening affordability challenges across the country.
Immigration and Student Demand Add Pressure
Strong population growth from immigration and international student arrivals continues to fuel rental demand. Newcomers often rely on rentals as their first housing option, particularly in cities like Toronto, Vancouver, and Montreal. Post-secondary students also compete for rentals near campus areas, further tightening supply. This added pressure on already limited rental stock drives up prices and reduces availability, making it harder for both new and existing residents to find affordable places to live.
Real estate & housing market trend – Overview
| Month | Real Estate Market Overview | Rental Market Effects | Developer & Policy Response |
| July | Slow but steady home price growth; high prices in Toronto & Vancouver. Seasonal rental demand | Rising demand for rentals due to fewer homebuyers/seasonal | Developers begin focusing more on rental units and affordable housing |
| August | Elevated interest rates limiting mortgage qualification; softer price increases | Increased rental demand continues, less ability for new buyers | Shift to rental and affordable projects intensifies; smaller cities gain interest |
| September | Moderate market activity; suburban and smaller city markets attract buyers – Interest rate drop prompts buyer interest | Rental market remains strong, buyer interest sparked by interest rate drop | Interest rate drop, shift to potential buyer attraction, hopeful for busier end of year |
Broad Market Trends in 2025: Real Estate
In Canada, the real estate market in 2025 is showing slow but steady growth. Home prices are still high in major cities like Toronto and Vancouver, but they aren’t rising as quickly as in past years. Interest rates have remained elevated, making it harder for many Canadians to qualify for a mortgage. As a result, fewer people are buying homes, and demand for rentals is going up. In response, developers are shifting focus to building more rental units and affordable housing projects. Smaller cities and suburban areas are also gaining attention, as people look for less expensive places to live. Government policies are aiming to increase housing supply, but the impact is gradual.
However, the Bank of Canada announced the first interest rate cut since March 2025 to 2.5% in order to help stimulate the economy, citing a softened job market, eased inflation (excluding gas prices), and removed retaliatory tariffs against the United States. According to CBC, the GDP fell in the second quarter as expected, with exports to the U.S. dropping after an initial surge due to tariffs. Businesses are scaling back investments and tariffs continue to heavily impact key industries like auto, steel, aluminum, copper, lumber, and agricultural exports. Meanwhile, Canada has lost over 100,000 jobs in two months, pushing the unemployment rate up to 7.1%.
All of these factors have influenced the rate drop, which may spur more real estate activity in the latter half of 2025.
What Does This Mean for Renters?
For renters in Canada, 2025 is shaping up as a mixed experience. The Bank of Canada’s recent interest rate cut follows a period of hikes that, along with persistently high home prices, have kept many potential buyers in the rental market longer. This increased demand is driving up rents, especially in major cities. At the same time, some provinces and municipalities are expanding rent control measures and investing in affordable housing to provide relief.
While new rental developments are emerging, they often come with higher prices. Many Canadians are adapting by moving to smaller towns, sharing housing, or negotiating longer leases to manage costs. In this environment, renters need smart planning and flexibility to navigate the evolving market. Let’s look back at what has happened in the rental market in the last three months.
Canada’s Rental Market July 2025 – Peak Seasonal Demand
Trend Overview
Rental demand across Canada reached its seasonal peak in July 2025, driven largely by a slowdown in homebuying activity. Many prospective buyers are opting to rent instead, discouraged by persistently high home prices and elevated interest rates. As a result, the rental market has seen a significant uptick in activity, particularly in urban centres.
Market Drivers
- High home prices in cities like Toronto and Vancouver
- Stricter mortgage qualification requirements due to ongoing interest rate pressures
- Seasonal trends, such as students and relocating workers seeking housing during summer months
Impact on the Housing Market
In response to growing rental demand, developers are shifting their focus toward constructing more rental units and affordable housing options. At the same time, smaller landlords are experiencing increased competition, leading to upward pressure on rents in high-demand areas. This shift may also temporarily ease home price growth, as fewer buyers compete in the ownership market.
Canada’s Rental Market August 2025 – Competition Intensifies
Trend Overview
Canada experienced its busiest August for home sales since 2021, continuing a strong upward trend in the housing market. According to the Canadian Real Estate Association (CREA), home sales have now increased for five consecutive months, showing a 12.5% rise since March. This growth has been led by major urban areas such as Montreal, Vancouver, and Ottawa.
In August alone, home sales rose by 1.1% compared to July, while new listings increased by 2.6%. The national average home price also saw a 1.8% year-over-year increase, reaching $664,078. CREA notes that this growth aligns with their overall market forecasts, although the pace has been slightly slower than expected. However, there are signs that another surge in sales—similar to the one seen late last year—could be on the horizon.
Market Drivers
- Continued population growth in major cities
- Stabilizing interest rates
- Renewed buyer confidence
- Tight rental supply pushing more people toward homeownership
Impact on the Housing Market
The intensified competition is putting pressure on both the rental and ownership markets. With more buyers attempting to enter the market and inventory still relatively tight, prices are likely to remain elevated. This environment may also further limit affordability, especially for first-time buyers, and place additional strain on the rental sector as would-be buyers delay purchasing decisions.
Canada’s Rental Market – September 2025: Stabilization, Rate Drop, but Still Elevated
Trend Overview
As of September 2025, Canada’s rental market is beginning to show signs of stabilization following several months of intense competition. While the pace of rental growth has slowed, average rent prices remain elevated. The recent interest rate cut by the Bank of Canada in September is expected to gradually ease borrowing costs, which may encourage more renters to consider homeownership in the coming months, although the immediate impact on rents remains limited.
Market Drivers
- Slower population growth, particularly in key provinces like Ontario
- Changing job conditions, with more people working remotely or facing employment uncertainty
- Reduced international migration, easing demand pressures in some markets
- Limited affordable housing supply and ongoing seasonal demand, which continue to uphold high rental prices
- The September interest rate cut, which could over time improve mortgage affordability and influence housing demand dynamics
Impact on the Housing Market
Although the market is cooling slightly, vacancies may rise modestly—especially in newly built, purpose-built rental units. However, rental costs are discouraging some renters from transitioning to homeownership, keeping demand in the rental sector strong. Meanwhile, the interest rate cut is likely to attract additional homebuyers over time, but in the near term, the strength of the rental market continues to draw investors seeking steady returns in high-demand areas.
City-Wise Rental Market Effects
Canada’s rental market is seeing varied impacts across cities, shaped by local economic conditions, population shifts, and housing supply. Here’s a brief overview of how major cities are being affected.
Vancouver
Low vacancy, high rents, limited new housing; prices remain high but are softening slightly, with some downward pressure expected into late 2025.
Toronto
High immigration that has recently cooled, affordability squeeze, downtown condo market stabilizing; prices may stay flat or dip slightly depending on interest rate trends.
Calgary and Edmonton
Strong inflows from other provinces, rising rents but still more affordable than Vancouver and Toronto; real estate prices are holding steady or rising moderately due to demand.
Halifax
Changing economy and local industry, more interprovincial migration, tourism; housing market remains active with moderate price growth expected into 2025.
Outlook for Late 2025 & 2026: Housing and Rental Market Forecast
Throughout the rest of 2025 and into 2026, Canada’s rental market will be shaped by slower population growth and changing employment conditions, with Ontario seeing the most impact due to reduced international migration, especially near universities.
As new rental supply outpaces current demand, vacancy rates may rise, particularly in newer purpose-built units. Despite short-term oversupply, sustained development remains essential to meet long-term population needs and improve affordability for renters. The market is in a period of adjustment, balancing immediate challenges with future housing demands, along with the potential for opportunities driven by the interest rate cut.
FAQs:
What is the forecast for Canada’s real estate in 2025?
Some forecasts expect modest national home‐price growth in 2025 (around +3‑6%), driven by falling interest rates, better affordability and tighter supply in many provinces
Are real estate prices dropping in Canada?
In some markets (notably British Columbia, Ontario, and parts of B.C. like Fraser Valley and Vancouver), prices are declining slightly year‑over‑year, while in others they remain flat or marginally up.
Is it better to rent or buy?
It depends on your financial situation, location, and long-term plans—buying builds equity, but renting offers flexibility.
Is renting cheaper than buying in Canada?
Yes, in many cities, monthly rent is still cheaper than mortgage payments, especially when interest rates are high.
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